U.K. house demand surges in October

LONDON--Surging demand for U.K. homes led to the most widespread rise in house prices in more than 11 years during October, fueling fears that in the absence of a pickup in home-building the nation may be on the brink of a fresh property bubble.

The Royal Institution of Chartered Surveyors Tuesday said its headline house prices balance rose to +57 in October, up from +53 in September, to hit its highest level since June 2002. The balance is calculated by subtracting the proportion of surveyors reporting house prices fell from those reporting that they rose.

Without a significant increase in the construction of new homes, prices are set to rise further, RICS chief economist Simon Rubinsohn warned.

"The amount of homes currently up for sale is still nowhere near enough to keep up with demand and this imbalance urgently needs to be addressed. House-building starts have picked up recently but we are still well behind in terms of the amount of properties needed," Mr. Rubinsohn said.

The survey is in line with other recent reports from lenders Halifax and Nationwide showing house prices rose again last month.

The sharp jump comes as the government's new scheme to help more potential home-buyers secure a mortgage got underway. Under the second phase of its Help to Buy program, the government guarantees a proportion of a 95% loan-to-value mortgage--where the buyer has just a 5% down payment and can afford monthly mortgage repayments of nearly 1,000 pounds ($1,601).

Since starting four weeks ago, the response has been strong with 2,384 applications made through the Royal Bank of Scotland and Halifax, which were the first two lenders to sign up.

The majority of those applications came from first-time buyers in the South East of England for a home costing GBP163,000, the government said.

However, the demand has prompted economists to warn of the need to monitor the housing market.

"There is a mounting danger that house prices could really take off over the coming months," said Howard Archer, chief economist for the U.K. at IHS Global Insight.

"It is therefore of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced," Mr. Archer said.

The Bank of England's Financial Policy Committee says it stands ready to advise the Treasury if the property market shows signs of overheating.

Last week, FPC member Donald Kohn said that while the new supervisory body may not be able to stop bubbles forming, it should be able to prevent them from causing widespread harm.

In a bid to reassure critics that Help to Buy will be stopped if it threatens financial stability in the U.K., Chancellor of the Exchequer George Osborne has charged the FPC with reviewing the program annually. If the central bank is concerned that it poses risks to house price inflation and recommends the scheme is ended then it would be "politically...very difficult" for the Treasury to ignore that advice, Mr Osborne said.

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